The European Central Bank cuts interest rates for the first time since 2019

The European Central Bank lowered interest rates on Thursday for the first time in almost five years, signaling the end of its aggressive policy to stamp out a rise in inflation.

As inflation moved back closer to the bank’s 2 percent target, officials cut its three key interest rates, which apply in the 20 countries that use the euro. The benchmark deposit rate was cut to 3.75 percent from 4 percent, the highest in the bank’s 26-year history and where the rate had been fixed since September.

“The inflation outlook has improved markedly,” officials said in a statement Thursday. “It is now appropriate to moderate the degree of monetary policy tightening.”

There is growing evidence around the world that policymakers believe high interest rates have been effective in slowing economies and curbing inflation. Now, lowering rates will provide some relief, making it cheaper for businesses and households to borrow.

“Monetary policy has kept financing conditions tight,” policymakers said. “By curbing demand and keeping inflation expectations well anchored, this has contributed significantly to reducing inflation.”

On Thursday, Europe’s benchmark stock index rose to a record level before the rate cut was announced.

On Wednesday, the Bank of Canada became the first Group of 7 central bank to cut rates. The central banks of Switzerland and Sweden also recently cut rates.

There is more caution in the United States, where Federal Reserve officials hope to have more confidence that a recent streak of stubborn inflation readings will end. The Bank of England has opened the door to rate cuts, and some officials say rates could be cut this summer.

Leave a Comment